Like many of our clients, we are constantly updating our
Continuous Professional Development (CPD).
One of the many pieces of reading material we were looking
through had the title of 'Advisers Have Vital Role As
Persuaders'.
This was based on the results of a survey which asked both
individual investors and advisers 5 questions about
retirement planning success. Fidelity, an investment group,
asked these 2 groups to rank 1-5 the factors below:
The survey aimed to identify how well educated a typical
investor is, and to stress how important an advisers job
was to ensure that the message they want to get across does
indeed communicate itself to individuals. The context for
this was that there is a lot of talk about the coming
'pension crisis', and how vital it is that investors get
the right advice.
Priority / Advisers / Individuals
Amount saved over a lifetime / 1 / 2
Date at which saving started / 2 / 4
Getting the right asset allocation / 3 / 5
Picking the right funds / 4 / 3
Finding the best pension plan / 5 / 1
If we simply concentrate on the first and last factors, we
see that the priorities here are reversed. Whilst
individuals did understand that the amount saved over a
lifetime, identified by advisers as the most important
factor, was indeed important, they still rated 'finding the
best pension plan' as number 1.
Now, we have written many articles on this subject, and are
certain that no regular reader will have made this mistake!
However, this survey has once again shown that the idea
that there is a 'best pension plan' out there is still
prevalent with individual investors.
We do not have space to reiterate our investment process
here, but the long and short of it is that, whilst the
pension wrapper is important (as it is tax efficient), the
investments within the pension are what really matters.
When we first looked at the results of this survey, it
reminded us of a recent experience we had when a new client
contacted us after finding our website via Google. He
explained that he was concerned about the advice he had
been given by his Independant Financial Adviser (IFA), and
could we give our view on his situation. When Graeme met
him, it became clear that with very little evidence as to
why, the IFA was advising the client to invest over
£2,600 per month into a Personal Pension. When asked
why, the IFA said that it would allow the client to retire
earlier, and that this was the 'best' pension that he could
recommend.
When Graeme asked:
- Were your goals in life discussed properly?
- what risk questionnaire/assessment was used?
- what was the result of the cash flow forecast?
- Have the NHS Pension and State pensions been taken into
account?
- where is the expenditure template showing what you need
at 60?
- Has the sale of the practice been taken into account?
- Have any possible inheritances been factored in?
- Have the existing investments been built in?
The answers were that none of these had been discussed in
detail or at all!
Many things concern us here, including the probability
(based on many clients' case work) that if such planning
were implimented, the client would possibly have 'too much'
for their needs age 60 plus, and in a wrapper which
restricts what you can do with it (75% of the proceeds have
to be used to provide an income - 25% is available as tax
free cash as a lump sum).
This can of course also be at the cost of the client's life
now - what's wrong with enjoying life and spending money
now if more money does not need to be invested?
The key word is measurement - or the lack of it in this
case.
To cap it all, the dentist had a copy of the quotation that
had been left with him for the Personal Pension. For the
few hours work that had been carried out for the client,
the last page showed a very interesting remuneration figure
for the IFA. This money would be taken from the clients
pension account in the first year.
£19,432 to be paid as a lump sum when the client
signed up!
The Financial Tips Bottom Line
Be aware that there is no 'best pension', and if anyone
says there is it's probably time to take a step back and
ask the adviser what form of measurement they have used to
arrive at the decision they have.
Action Point
If your adviser has not taken into account the above
factors as a minimum to your overall retirement planning,
then we recommend you do so now. Retirement planning is not
just about pensions - building in all factors and having a
life now is quite important!
Also, even if you intend to simply buy policies instead of
comprehensive planning, be aware of advisers who charge
large amounts of commission and talk about the 'best
pension'.
----------------------------------------------------
Ray Prince is an Independent Financial Planner with
Rutherford Wilkinson plc, and helps UK Resident Doctors and
Dentists get the best deals on mortgages, protection and
investments, as well as helping them achieve their
financial objectives. Just visit
http://www.medicaldentalfs.com to get your free retirement
planning guide. Rutherford Wilkinson plc is authorised and
regulated by the Financial Services Authority.
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